Summary: A high-risk client means taking on an assortment of different penalties and fees when applying for a new account. Here are some factors you should look at if you’re within this category.

If you’re labeled as a high-risk client for credit card processing, it might sound like it’s the end of the world, but for many cases, it isn’t. Rather, the situation is quite complex and in some cases, the cost of being a high-risk merchant might come a variety of pros and cons.

First off, in order to accept any payment made via credit card, a business must obtain a merchant account with a specified bank. Now, the cost of this service varies drastically and is dependent on a variety of factors – most notably the type of business.

Normally, high-risk candidates face higher fees and a specialized payment processor will likely be required. Processors like to look over these merchants because of perceived risks that could end up costing them money.

Chargebacks and the Effects

One of the various factors that make high-risk merchants a threat in the eyes of a processor is the increased possibility of chargebacks. Now, there are various elements like the type of service of product sold, the average amount of money made for monthly sales, and the countries the merchant sells to which can essentially increase the risk of chargebacks, leaving processors in the heat of millions of potential losses.

Processors work on the fact that high-risk clients will produce more chargebacks, so they create charges right from the get-go. High-risk merchants are liable to an increased initial setup and higher monthly fees – and even double the normal processing fees. For the merchant, this could mean a significant financial hill he or she must face when utilizing this service.

High-risk processors tend to force their clients to have a reserve, which is essentially a non-interest savings account that is utilized by the bank as a sort of insurance. For instance, if a chargeback is filed against the business and the merchant is not able to reimburse the bank from the merchant’s account, the reserve will be utilized to cover the financial loss. This gives the processor more room to work with when dealing with these types of clients.

Now, these reserves will typically hold anywhere from 5 to 10% of their monthly sales for half a year. The money in the reserve account will still belong to the merchant but it cannot be accessed until 180 days have passed – or other circumstances are address. This restricted access obviously poses a threat to the merchant and has the potential to cause massive cash flow issues for the merchant.

Blog submitted by Charge.com: For high risk credit card processing and other credit card services, visit the pros at Charge.com for all your merchant account needs. Give them a call today for more information.